The group’s annualized 1HFY12 earnings were largely in line with both ours and consensus full year estimates. Earnings were up a promising 9.8% q-o-q and with 2H2012 benefiting from stronger corporate loans growth and a pipeline of large equity IPO mandates, the group is comfortably on track to meet its targeted 16.4% ROE targets for FY12. Maintain BUY, at an unchanged FV of RM8.53 (2.3x P/BV, 16.7% ROE).
In line. The group’s annualized 1HFY12 earnings were in line with both consensus and our full year estimates, representing 50% and 48% of consensus and our full year estimates respectively. 1HFY12 net profit expanded 12.4% y-o-y while 2Q12 net profit grew by a robust 9.8% q-o-q. The group’s Indonesian consumer banking unit was the star performer, registering a 1HFY12 PBT growth of 32%, whereas the Malaysian consumer banking unit chalked up a subdued 4.3% y-o-y given the persistent NIMs pressure and moderating consumer loans growth which is consistent with the overall industry.
Pick up in investment banking momentum but dampened by lower trading gains. As expected, there was a significant pick up in investment banking fee income which expanded 838% q-o-q as large equity investment banking income from large IPOs such as Felda begins to stream in. Given the larger slew of large IPOs to be executed in 2HFY12 (ie: IHH, IGB REIT and Astro), we expect investment banking income to gain even stronger sequential growth traction in the ensuing quarters. However, lower fixed income trading gains (-23% q-o-q) and forex income (- 94% q-o-q) dampened the pickup in investment banking income leading to a 11.9% q-o-q decline in overall non-interest income.
Robust y-o-y core operating growth. Pre-provision core operating earnings grew by a relatively robust 17.6% y-o-y despite a 13.4% y-o-y increase in operating costs. As such, cost to income ratio inched downwards to 55.3% in 1HFY12 vs 56.2% in 1HFY11. The key 1HFY12 y-o-y growth drivers were: i) a 10.7% y-o-y growth in net interest income as the group grew its loans books with a more muted impact on margin compression especially in Indonesia, ii) strong bond origination flows in 1Q12 and trading gains helped fuel a 126% y-o-y increase in overall treasury income, and iii) a 40.1% increase in forex income.
Strong sequential performance driven by lower provisions, solid loans growth and uptick in NIMs. The robust sequential earnings growth trend of 9.8% q-o-q was largely attributed to: i) 64% q-o-q decline in provisions underpinned by stronger recoveries (+39% q-o-q) and a steep drop in individual allowance (-94%), and ii) solid 7.3% q-o-q growth in net interest income underpinned by 9bps expansion in NIMs (largely from Indonesia) and solid 5.2% q-o-q loans growth.
Sequential loans growth: boosted by domestic corporate loans and Indonesian consumer loans. Following 1Q12 lackluster sequential contraction in gross loans, the group has managed to register swift recovery in 2Q12, registering a 5.2% q-o-q loans growth driven by: i) CIMB Niaga’s +5.7% q-o-q growth and Malaysia domestic +7% q-o-q corporate loans growth. Malaysia domestic consumer loans growth was more muted, registering a growth of 2.5% q-o-q and with both mortgages and auto loans registering similar growth of 2.1% q-o-q. Management has retained its overall group loans growth target of 16% with geographical loans growth targets for its two key markets – Malaysia and Indonesia – at 12% and 18% respectively. We have a more conservative loans growth assumption of 10% for its Malaysian operations, 18% for its Indonesian operations and 13% for overall group loans growth. Management has guided for a more muted growth from Indonesia in 2H2012 given the relatively high LDR for CIMB Niaga currently at 98.8% and modified LDR at 87.5% (inclusive of potential liquidity raised from government bonds investment portfolio). In respect to domestic loans growth, corporate loans growth momentum remains healthy while domestic mortgage and auto loans are expected to grow at a stable 9% to 10% pace. It was interesting to note that unlike its peers and also that of industry growth statistics, the group registered a less robust 6.2% y-o-y growth in commercial property loans vs industry growth of more than 20%. We believe this could be a sensible strategic move to reduce its risk exposure given the fact that many property developers have been by-passing the 70% third property financing loan to value ratio cap by BNM on residential properties by switching its launches to commercial properties which are not subjected to such caps.
Asset quality intact. The group’s asset quality remained largely intact, with absolute gross impaired loans declining 2.6% q-o-q and gross impaired loans ratio declining further to 4.43% from 4.77% in 1Q12. Malaysian loans portfolio registered a marked 13.6% q-o-q improvement in absolute impaired loans, whereas its Indonesian unit suffered a slight 5.5% q-o-q uptick. Given the significant recoveries from its Malaysian operations, the group registered a 1HFY12 annualised credit cost of just 20bps ahead of its targeted full year charge off rates of 31bps.
Retaining 2012 targets – ROE of 16.4% vs 1HFY12 annualised ROE of 16.0%. Despite the still challenging economic environment, management is retaining its 2012 targets on the back of: i) a stronger equity deal pipeline, and ii) stronger ETP-related corporate loans and bond raising growth traction. The key risk lies in a potential collapse in the capital market as CIMB will be the most impacted by any collapse in the capital markets given its relatively high investment banking non-interest income contribution, with a non-interest income to total income ratio of 36% vs the industry average of 24%.
Source: OSK
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